Retailers Future-Proof Their Fleets

Toys “R” Us chief executive, Jerry Storch took pains to defend the relevance of brick-and-mortar retail at a media presentation last week; however, the recent refurbishments, ground-breakings, and expansion plans hitting physical retail have made the ongoing relevance of brick-and-mortar clear. As retailers put away their patch-up kits and take a stand on the future of their land-based fleets, brand marketers will gain a glimpse into the future of physical retail.

Leading with Luxe
August’s U.S. retail sales rise of .9% represents the best numbers in six months, but the modest increase would not seem to justify major vaults into high-end goods. However, making an ambitious impression early on can have its advantages since shoppers tend to get in a spending mood when the aspiration is dialed up. Just as an über-expensive bottle of wine on the bar menu drives patrons to mid-priced options rather than all the way to the bottom, retail pricing contrasts also provide context.

Macy’s massive makeover of its Herald Square flagship store in New York will feature a 19,000 square foot, multi-level “luxury hall” that will house branded shops from the likes of Louis Vuitton, Gucci, Burberry, and Longchamp. In stark contrast to its formerly safe ground-floor assortments, Macy’s can’t-be-missed luxury statement will greet customers at every major entrance. Shoppers’ unavoidable journeys through Macy’s luxury hall will make the rest of the store seem like a value.

According to Holt Renfrew’s president, Mark Derbyshire, the 175-year-old Canadian luxury retailer’s customers are currently spending 26 percent more than they did in 2010. Derbyshire obviously isn’t resting on his laurels. While high-end retailers such as Neiman Marcus are experimenting with introducing lower-cost items in order to broaden their appeal, Renfrew’s recently-announced refresh will see it almost literally doubling down on opulence. The retailer’s $300 million expansion plan centers on growing its footprint by 40% in its existing stores, and making its already-successful designer spaces even more impressive. Given Canada’s relatively small and dispersed population, Renfrew’s focus on increasing the size and productivity of existing stores makes sense. If you’ve already grabbed the big spenders, why not just sell more of the best to them?

Programmed for Prosperity
What’s old is new again. Retail-tainment is coming back on the scene, only with a major digital twist. Burberry has once again ratcheted up the wow factor in its just-opened Regent Street store which, in addition to the now-expected iPad-toting sales associates, will incorporate a number of digital entertainment elements. Burberry has even declared the store “future-proof.” Sporadic weather “moments” of digital rain showers, accompanied by the sounds of a thunderstorm, have been programmed into the environment. The store features a huge screen on which it plans to live-stream Burberry fashion shows, as well as a permanent stage that will feature one-off gigs from Burberry’s pick of the best music talent. Many retailers have started to talk about bringing online excitement to the in-store experience. Burberry is delivering and influencing others to do the same. Holt Renfrew has also mentioned incorporating “digital moments” into its Yorkdale remodel.

Site Synergy
Although Macy’s will no doubt learn a lot from the drastic departures in store design and brand choice that characterize its Herald Square makeover, the changes are primarily intended to capitalize on the luxury gap in the neighborhood and what CEO Terry Lundgren refers to as the “tourist element.” Macy’s isn’t incubating ideas for other locations, but is putting a stake in the ground by hard-wiring the location for luxury. In Lundgren’s words, “we decided we were going to do this just one time.” The store’s significance goes far beyond that of a traditional brand-brag flagship for Macy’s and the brands that are participating in the shop-in-shop re-visioning. It will create a new luxury corridor for the Herald Square neighborhood and participating brands will benefit from designer adjacencies that wouldn’t exist in a standard storefront. The shop-in-shops will actually act as hyper-local mini flagships.

The shop-in-shops currently rolling out within J.C. Penney accomplish much the same thing, though on a chain-wide basis and with more middle-of-the-road brands. Given Macy’s major move, bestowing credit to CEO Ron Johnson for creating what he called the “first specialty department store of its kind” may be splitting hairs, but clearly the model is catching on.

As retailers reinvest in their fleets for the long term, brand marketers will gain clues into the role that physical retail will play for many years to come. Learn more about how to future-proof your retail strategies at LIMA’s second annual Retail Symposium, on October 10th at the Yale Club in New York. I’ll join Paco Underhill, Macy’s CMO Martine Reardon, and additional retail thought leaders to share insights on retail-tainment, brand strategy, the new world of digital innovation, shopper marketing and more.Register now – it’s only three weeks away!